Tax Hikes, Medicaid Cuts Put Hurt On Hospitals

A deal reached between the governor and legislative leaders would impose yet another round of tax hikes on hospitals while cutting their Medicaid rates.

This will hurt Connecticut's economy and increase costs to those in need of hospital care. Hospital executives use words like "devastating," "dire" and "precipitous."

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Yale-New Haven Health Systems says it will have to cut $117 million over the next two years to absorb the state's blow. It's looking to close clinics in East Haven and Branford and has put off installing a full IT backup system.

The Connecticut Hospital Association is warning of more layoffs in the industry, which would add to the state's highest-in-New-England unemployment rate.

A pop-up on the Bristol Hospital website says it's in "serious jeopardy."

The state's credibility will also be jeopardized if this budget deal goes through.

What Happened To The Promise?

In 2011, hospitals agreed to a new state tax as a way to bring in more federal money. By taxing hospitals and then giving them back the money to cover the cost of unreimbursed care, the state would capture hundreds of millions of dollars in federal matching funds. It promised that hospitals would be "held harmless."

So much for that promise. The state returned less and less of the tax money to hospitals every year, and federal matching funds plummeted.

Now the state plans to raise the hospital tax again. In addition, it plans to cut Medicaid funding, even though Medicaid pays only half of the cost of care and the Medicaid population has grown in eight years from 424,000 to nearly 730,000, or one in every five state residents, according to the hospital association.

A report this month co-authored by Fred Carstensen, director of the Connecticut Center for Economic Analysis, says the hospital tax is "making the situation in Connecticut worse, resulting in significant job losses, reductions in household incomes and budget shortfalls."

Such burdens hurt hospitals' ability to invest in the biomedical research that the state is pinning its hopes on as a jobs generator.

Incoherent State Strategy

"No one is going to be happy in a tough budget year," says Mark Bergman, spokesman for Gov. Dannel P. Malloy.

The Malloy administration has argued that hospitals are doing just fine, in part because the Affordable Care Act is creating more insured patients. But the amount of free "charity" care that hospitals provide — by law they can't refuse service to anyone, regardless of ability to pay — hasn't declined.

The governor's office also points to some hospitals' decent profit margins as evidence they can be taxed more. But hospital executives say those profits came in many cases from one-time savings, such as the melding of the Hospital of St. Raphael with Yale-New Haven Hospital. And five of 28 hospitals in the state reported deficits in 2014.

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In fact, acute-care hospitals saw operating profits fall 35 percent in fiscal 2013, the Connecticut Health I-Team reported late last year. Hospitals made up for the slide through investment gains, charitable contributions and other means.

Hospitals say they need operating profit margins of 3 to 5 percent to get reasonable borrowing rates just to keep up with technology and building needs. They point out that their tax liability is higher than corporations' in this state and that higher taxes will mean higher costs to those who use hospitals.

Hospitals can be economic drivers for Connecticut, but not if the state treats them like cash cows that can be milked to death.

The hospital tax hikes and Medicaid rate cuts "have enormous impact," said Elliot Joseph, CEO of Hartford HealthCare. And the strategy behind them — beyond draining hospitals to pay for the ever-increasing cost of government — seems lost in the ether.